Slide 1: Half Year Results
Half Year Results 6 Months Ended 30 June 2018 24 July 2018
Slide 2: Agenda
Agenda Operations and Business Review Will Gardiner, CEO Financial Review Den Jones, Interim CFO Delivering the Strategy Will Gardiner, CEO 2
Slide 3: H1 2018 Performance Summary
H1 2018 Performance Summary Full year expectations unchanged, H1 impacted by two unplanned outages Group Total Recordable Injury Rate Strategy progressing well Sustainable and growing dividend 0.18 (H1 2017: 0.08) Full year in line with expectations EBITDA Pellet Production £102m (H1 2017: £121m) In
Slide 4: Operations and Business Review
Operations and Business Review
Slide 5: Safety and Sustainability
Safety and Sustainability Safety Total Recordable Injury Rate (TRIR) 0.4 Good Group performance 0.3 – TRIR 0.18 (H1 2017: 0.08) 0.2 Sustainability Biomass sustainability 0.1 – Proven carbon abatement(1) 0 – 86% saving versus coal 2007 2009 2011 2013 2015 2017 H1 2018 Annual Historic average – 64% sa
Slide 6: Pellet Production
Pellet Production Providing good quality pellets at lowest cost to Drax Generation business Good financial and operational performance EBITDA £14m increase in EBITDA 80% growth in pellet production to 0.7Mt tonnes (H1 2017: 0.4Mt) £10m (H1 2017: £4m loss) Optimising pellet quality vs. cost Pellets p
Slide 7: Power Generation
Power Generation Flexible, renewable generation and system support services business Reduced biomass generation due to unplanned outages EBITDA Optimised generation and supply chain to minimise impact in Q1 Good operational availability in Q2 £88m (H1 2017: £137m) Increasing low-carbon generation ca
Slide 8: B2B Energy Supply
B2B Energy Supply Profitable non-domestic supply business; growth in EBITDA and customer meters Good operational and financial performance EBITDA Strong renewable proposition £16m 59% renewable power sales (H1 2017: £11m) Route to market for over 2,000 small scale renewable generators Power sales Ga
Slide 9: Financial Review
Financial Review
Slide 10: Financial Highlights
Financial Highlights Den Jones – Interim CFO EBITDA Interim Dividend Expected Full Year Dividend £102m 5.6p (£22m) £56m (H1 2017: £121m) (H1 2017: 4.9p, £20m) (2017: £50m) Underlying EPS(1) Net Cash From Operating Activities Net Debt(2) 1.6p/share £112m £366m (H1 2017: 2.2p/share) (H1 2017: £197m) (
Slide 11: Income Statement
Financial Review Income statement H1 2018 £m H1 2017 £m Revenue 2,079 1,801 EBITDA 102 121 Depreciation and amortisation (84) (90) EBIT 18 31 Net finance cost(1) (16) (19) Tax 5 (3) Underlying earnings(2) 7 9 Cash and balance sheet H1 2018 £m H1 2017 £m Net cash from operating activities 112 197 Net
Slide 12: EBITDA Bridge H1 2017 – H1 2018
EBITDA Bridge H1 2017 – H1 2018 Full year EBITDA in line with expectations EBITDA bridge H1 2017 – H1 2018 120 110 100 £m 90 121 80 102 70 60 H1 2017 Biomass Ancillary Coal Pellet B2B Corporate Other H1 2018 generation services generation Production Energy Supply costs Drivers of full year performan
Slide 13: Net Cash Flow
Net Cash Flow Strong cash generation In £m H1 2018 H1 2017 YTD working capital movement EBITDA 102 121 Inventories Working capital / other 21 114 – Reduced biomass inventories – optimisation of supply and operation through outages and Debt service (18) (29) seasonal summer cycle Tax 7 (9) Receivable
Slide 14: Investment – 2018
Investment – 2018 Full year expectations remain unchanged Maintenance Maintain operational performance £50m Includes: - Incremental improvements to generation Improvement - B2B energy supply platform £20-£30m - LaSalle Bioenergy rail spur Strategic Includes: £30m - U4 conversion 14
Slide 15: Financial Structures in Place to Support Growth
Financial Structures in Place to Support Growth Strong balance sheet £350m fixed rate high yield bonds (April 2017) – 2022 maturity £350m fixed rate bonds $300m fixed rate high yield bonds (April 2018) 5-year maturity – Proceeds used to repay £200m floating rate bonds – Removal of floating rate expo
Slide 16: Clear Capital Allocation Policy
Clear Capital Allocation Policy Commitment to capital discipline Maintain credit rating Invest in core business activities 2018 expected full year Pay a sustainable and growing dividend dividend £56m Return surplus capital to shareholders 2018 interim dividend £22m (5.6 pence/share) Commenced £50m s
Slide 17: Delivering the Strategy
Delivering the Strategy
Slide 18: Changing UK Energy System
Changing UK Energy System GHG emissions down 43% compared to 1990, more required to achieve 80% reduction by 2050(1) Source: Reducing UK Emission – 2018 Progress Report to Parliament, Committee on Climate Change, June 2018 Drax proposition supports UK energy objectives: Flexible, lower carbon electr
Slide 19: Development of Options for a Coal-free Future
Development of Options for a Coal-free Future Flexible, low-carbon generation and system support Project Description Progress in 2018 • Optimise generation across all ROC units • Unit conversion summer 2018 Fourth biomass • On budget and schedule • Low capital cost unit • Return to service late summ
Slide 20: Fourth Biomass Unit Conversion
Fourth Biomass Unit Conversion Low-cost conversion of a further coal unit to biomass Investment case UK power prices – baseload vs. peak 75 Low capital cost 125,000 additional ROCs per year (index linked to 2027) 70 Optimised generation across three ROC units with cap 65 – Lower availability but run
Slide 21: Biomass Cost Reduction
Biomass Cost Reduction Targeting >30% reduction in biomass cost by 2027 Reduce feedstock cost Use a greater proportion of lower cost residues Widen fuel envelope Reduce process and transport cost Eliminate stages of production process Economies of scale in logistics Improve plant performance Operati
Slide 22: US Pellet Production – projects update
Biomass Cost Reduction US Pellet Production – projects update Co-location of new sawmill LaSalle rail spur and loading facility Hunt Forest Products (HFP) to build new sawmill Rail transport to Baton Rouge port – 850k tonne sawmill plant next to LaSalle pellet plant Capital investment c.$15m Long-te
Slide 23: Drax Group 2025 EBITDA in Excess of £425m
Drax Group 2025 EBITDA in Excess of £425m High quality growing earnings across all areas of operation B2B Energy Supply Pellet Production Leading UK energy supplier At least 30% self-supply EBITDA >£80m(1) EBITDA >£75m(1) Power Generation Key part of UK infrastructure EBITDA >£300m(1) Underpinned by
Slide 24: H1 2018 Summary
H1 2018 Summary Full year expectations unchanged, H1 impacted by two unplanned outages H1 2018 Lower level of EBITDA reflecting two biomass outages Sustainable and growing dividend in line with capital allocation policy Financial structure in place to support growth 2018 full year EBITDA expectation
Slide 25: Half Year Results
Half Year Results 6 Months Ended 30 June 2018 24 July 2018
Slide 26: Appendices
Appendices 1. Definitions 2. Group Income Statement 3. Group Underlying Earnings 4. Group Cash Flow Statement 5. Pellet Production – Gross Profit 6. Power Generation – Gross Profit 7. B2B Energy Supply – Gross Profit 8. Consolidated EBITDA 9. ROC Reporting 10. Tax Reconciliation 11. Group Balance Sh
Slide 27: Appendix 1: Definitions
Appendix 1: Definitions Abbreviation Name Description BECCS Bioenergy Carbon Capture & Storage. The mechanism through which the System Operator can call upon additional generation/consumption or BM BALANCING MECHANISM reduce generation / consumption, through market participants’ bids and offers, in
Slide 28: Appendix 2: Group Income Statement
Appendix 2: Group Income Statement In £m H1 2018 H1 2017 ▲% Revenue 2,079 1,801 Cost of sales (1,801) (1,537) Gross profit 278 264 Operating costs (176) (143) EBITDA 102 121 (16)% Unrealised gains / (losses) on derivative contracts 24 (86) Depreciation and amortisation (111) (90) Other items (3) (6)
Slide 29: Appendix 3: Group Underlying Earnings
Appendix 3: Group Underlying Earnings In £m H1 2018 H1 2017 ▲% Reported (loss) / earnings (4) (85) Unrealised losses / (gains) on derivative contracts (24) 86 Asset obsolescence charge 27 - Cost of refinancing 7 24 Other items 3 6 Tax impact of above adjustments (2) (22) Underlying earnings 7 9 (22)
Slide 30: Appendix 4: Group Cash Flow Statement
Appendix 4: Group Cash Flow Statement In £m H1 2018 H1 2017 ▲% EBITDA 102 121 Working capital / other 21 114 Debt service (18) (29) Tax 7 (9) Net cash from operating activities 112 197 (43)% Capital investment – maintenance and improvement (48) (56) Capital investment – strategic - Acquisition of Op
Slide 31: Appendix 5: Pellet Production – Gross Profit
Appendix 5: Pellet Production – Gross Profit In £m H1 2018 H1 2017 ▲% Revenue 95 54 76% Cost of sales (66) (41) 61% Gross profit 29 13 123% 31
Slide 32: Appendix 6: Power Generation – Gross Profit
Appendix 6: Power Generation – Gross Profit In £m H1 2018 H1 2017 ▲% Revenue(1) Power sales 873 888 ROC sales 339 126 CfD income 165 156 Ancillary services income 9 21 Fuel sales 42 3 Other income 23 4 1,451 1,198 21% Cost of sales Generation fuel costs (544) (601) Fuel sold (45) (2) ROC support 192
Slide 33: Appendix 7: B2B Energy Supply – Gross Profit
Appendix 7: B2B Energy Supply – Gross Profit In £m H1 2018 H1 2017 ▲% Revenue 1,109 940 18% Cost of sales Cost of power and gas purchases (422) (442) Grid charges (226) (207) Other costs (387) (241) (1,035) (890) 16% Gross profit 74 50 48% 33
Slide 34: Appendix 8: Consolidated EBITDA
Appendix 8: Consolidated EBITDA Power B2B Energy Pellet H1 2018 In £m Adjustments Consolidated Generation Supply Production Segment EBITDA 88 16 10 3 116 Central costs (14) Consolidated EBITDA 102 Power B2B Energy Pellet H1 2017 In £m Adjustments Consolidated Generation Supply Production Segment EBI
Slide 35: Appendix 9: ROC Reporting
Appendix 9: ROC Reporting ROC assets In £m At 31 December 2017 146 Generated 192 Purchased 369 Utilised or sold (338) At 30 June 2018 369 Balance sheet reconciliation Generated – estimated benefit of generating electricity with biomass Utilised or sold – original estimated balance sheet value charge
Slide 36: Appendix 10: Tax Reconciliation
Appendix 10: Tax Reconciliation Reported Underlying In £m H1 2018 H1 2017 H1 2018 H1 2017 Profit / (loss) before tax (11) (104) 1 13 Tax at UK CT rate 2 20 (0) (3) Adjustment to prior year taxes and other Items 5 (1) 5 (1) Tax (charge) / credit 7 19 5 (4) UK corporation tax (CT) rates 19% for 2018 a
Slide 37: Appendix 11: Group Balance Sheet
Appendix 11: Group Balance Sheet In £m H1 2018 H1 2017 ▲% Non-current assets 2,267 2,396 Current assets 1,409 1,399 Current liabilities 1,047 987 Non-current liabilities 936 934 Net assets 1,693 1,874 (10)% Shareholders’ equity 1,693 1,874 37
Slide 38: Appendix 12: Contracted Power Sales
Appendix 12: Contracted Power Sales Contracted at 16 July 2018 2018 2019 2020 Power sales (TWh) 17.5 10.0 4.1 - Fixed price power sales (TWh) 17.4 9.4 3.5 At an average achieved price (per MWh) £45.1 £47.9 £44.3 - Gas hedges (TWh) 0.1 0.6 0.6 At an achieved price per therm (25.1)p 32.0p 46.4p 38
Slide 39: Appendix 13: Commodity Price Movements
Appendix 13: Commodity Price Movements EU ETS Carbon Power Price (UK) 19 65 Dec-17 Dec-18 17 Dec-19 Dec-20 15 55 13 £/MWh €/t 11 45 9 7 35 Sum-17 Win-17 5 Sum-18 Win-18 Sum-19 Win-19 3 25 Jul-16 Jan-17 Aug-17 Feb-18 Sep-18 Jul-16 Jan-17 Aug-17 Feb-18 Sep-18 Coal Prices (API#2) Gas Prices (NBP) 100 7
Slide 40: Appendix 14: Forward Baseload Spread Movements
Appendix 14: Forward Baseload Spread Movements Dark Green Spread Clean Spark Spread 15 15 10 10 5 5 £/MWh £/MWh 0 0 (5) (5) (10) (10) Jul-16 Jan-17 Aug-17 Feb-18 Sep-18 Jul-16 Jan-17 Aug-17 Feb-18 Sep-18 Sum-17 Win-17 Sum-18 Sum-17 Win-17 Sum-18 Win-18 Sum-19 Win-19 Win-18 Sum-19 Win-19 40 Source: D
Slide 41: Half Year Results
Half Year Results 6 Months Ended 30 June 2018 24 July 2018